Foreign Investors Keep Fingers Crossed as Tiger Global Loses Tax Case 

For years, the India–Mauritius tax treaty sat in that comfortable corner of policy where everyone knew what was going on but pretended not to notice too closely. Investors routed money through Port Louis, tax lawyers perfected their boilerplate, and regulators learned to live with the arrangement. Then, this week, the Supreme Court decided to read the fine print out loud.

The judgment, dealing with capital gains taxation under the India–Mauritius Double Taxation Avoidance Agreement, does not dramatically rewrite tax law. What it does instead is more consequential. It clarifies how far courts are willing to go in respecting treaty language, beneficial ownership tests, and legislative intent, even when the economic substance is thin and the optics uncomfortable. In doing so, it has reopened questions many believed were settled after the 2016 protocol amendment and the 2017 grandfathering cutoff.

At the heart of the case is a familiar structure. Foreign investors used Mauritius-based entities to invest in Indian securities, relying on treaty provisions that allocated taxing rights over capital gains to the country of residence rather than the source country. India accepted this framework for decades, partly to attract capital, partly because treaty commitments constrained unilateral action. Over time, however, the arrangement acquired a reputation as a conduit for tax arbitrage.

The foreign investor in this case was Tiger Global. The case relates to tax demand from its $1.6 billion stake sale in Flipkart to Walmart. Tiger Global had claimed that it is not liable to pay tax on the deal as its investment were grandfathered under the 2016 amendment. It had even won the case in the high court.

The Supreme Court’s ruling, however, reiterates that treaties are not optional instruments and cannot be ignored merely because the outcomes appear inconvenient. At the same time, it underscores that treaty benefits are not automatic. The tests of residence, beneficial ownership, and commercial substance still matter. Shell entities that exist only to capture tax advantages cannot expect judicial sympathy simply by waving a tax residency certificate.

What makes the judgment important is not just its immediate tax outcome for Tiger Global, but the interpretative posture it signals. The Court does not endorse aggressive retrospective action, nor does it validate every structure that predates the 2017 reforms. Instead, it affirms that legality must be assessed transaction by transaction, based on facts, intent, and substance. This leaves both revenue authorities and investors with less certainty than either might prefer.

For investors who entered India before April 2017 through Mauritius, the ruling carries wider ramifications. The formal grandfathering clause still stands. Capital gains on pre-2017 investments remain protected under the amended treaty, provided the conditions are met. However, the judgment makes it clear that grandfathering is not a blanket amnesty. If an investment vehicle lacks economic substance or fails beneficial ownership tests, it may still face scrutiny. Protection from tax does not equate to immunity from examination.

This has implications well beyond Mauritius. Many pre-2017 investments into India were routed through a range of low-tax jurisdictions including Singapore, Cyprus, the Netherlands, and other treaty hubs. While each treaty has its own language, the Supreme Court’s emphasis on substance over form strengthens the hand of tax authorities across the board. Structures that were once considered low-risk due to treaty coverage may now attract closer attention, especially in cases involving round-tripping, short holding periods, or minimal operational presence.

At the same time, the ruling also reins in the temptation for overreach. The Court is careful not to conflate tax planning with tax evasion. It recognises that investors are entitled to arrange their affairs within the law, and that policy changes cannot be retroactively imposed through interpretation. This balance matters. Excessive uncertainty would raise India’s risk premium, discourage long-term capital, and undermine the very credibility the tax system seeks to build.

For the tax department, the judgment is both an opportunity and a warning. It opens the door to challenging abusive structures, but only with evidence, discipline, and consistency. Fishing expeditions or broad-brush allegations will not pass judicial muster. Each case must be built on demonstrable facts, not assumptions about intent.

For investors, especially foreign portfolio and private equity funds, the message is subtler. India is not tearing up its treaty network. It is also not offering a free pass to legacy structures. Documentation, governance, decision-making processes, and economic substance will matter more than ever. Funds that treated holding jurisdictions as mailing addresses may need to reassess their exposure and compliance posture.

The timing is also notable. Globally, tax havens are under pressure, beneficial ownership norms are tightening, and information exchange is no longer theoretical. India’s ruling sits comfortably within this broader shift. It signals alignment with international standards without resorting to headline-grabbing confrontation.

In practical terms, the immediate market impact may be muted. Most large investors have already adapted post-2017, and new investments are structured with greater care. The real effect will be gradual and legal rather than dramatic and financial. Litigation will increase. Due diligence will deepen. Risk assessments will become more granular.

Perhaps the most enduring contribution of the judgment is philosophical. It reminds both the state and capital that tax treaties are not loopholes, but negotiated instruments with boundaries. Respecting them requires restraint from both sides. Exploiting them invites correction. Ignoring them invites chaos.

For India, navigating this middle path is essential. The country needs capital, but it also needs credibility. The Supreme Court has signalled that neither will be sacrificed lightly.